Strategy AssignmentExternal Analysis and Porter’s 5 Forces Comparison Nokia and Amazon.com Shai Zamir Dan Saguy
Preface• Founded in 1865 as a paper factory by Fredrik Idestam• A multinational communications corporation that is headquartered in Finland andengaged in the market of manufacturing of mobile devices and in converging Internet andcommunications industries• Over 132,000 employees in 120 countries, sales in more than 150 countries• Global device market share was 23% in the second quarter 2011• Founded by Jeff Bezos in 1994 (the site went online in 1995).• American multinational electronic commerce company in the online retail market.• Headquarters is in Seattle, Washington, United States.• The worlds largest online retailer, with different websites for large countries.•Started as an online bookstore, but soon diversified, selling DVDs, Music,software, games, electronics, apparel, furniture, food, and toys.
Supplier PowerThere are numerous mobile operatingsystems providers and hardware manufacturers, options are plenty,hence the bargaining power of suppliers is low.Suppliers have low power. Amazon is a very big company,Suppliers consider it as an important strategic customerand their commitment with amazon is essential.Amazon has the advantage of deciding when to pay their suppliers,how many of their products it will keep in its’ inventory.
Buyer PowerBuyer’s bargaining power is high. There is a large choice of products and very limiteddifferentiation of those products. Demand is elastic and highly sensitive to economy. Buyershave all the required information about alternative products, and there are low switchingcosts (depending on the mobile plans provided by the service provider)On one hand, consumers have the power to easily switch amazon to the competition, dueto the simplicity in internet product search and comparison, so amazon must maintain lowprices. On the other hand, after initially buying a product, consumers tend to return toamazon every time, assuming the price will be lowest, even without checking..
Rivalry among existing firmsCompetition is intense among existing players. The differentiation among existing productsis diminishing. However, players continue to differentiate in terms of applications andservices offered.Amazon is one of the first companies into the e-commerce field which gives a certain levelof tranquility. Nevertheless, the market is highly competitive. Amazon has innovated toachieve high levels of customer’s satisfaction which can assure their position in the market.A differentiation should be made between products such as books (in which amazon is astrong leader) and other products like clothing, which are also bought elsewhere.
Threat of SubstitutionThere isn’t a direct substitute to the mobile phone industry. However, Smart phones do awide variety of functions, so any product that specializes in one of those individualfunctions can also be termed as a substitute. Other formidable substitute products arenotebooks, PDA, tablet PCs.The threat of substitute is low. There is a megatrend of the world increasingly moving toonline commerce, rather than other options for example: shopping in stores, or ordering byphone. Amazon has innovated their services and products along the years and the name ofamazon.com is well recognized and trusted into the field hence there aren’t significantthreats of substitution at least in the short time.
Threat of new entryHuge capital requirement, high manufacturing costs, high R&D costs, constant push toinnovate and launch new products. Mobile industries are heavily regulated withgovernmental and legal barriers (radiation levels, warranty issues, etc.)Internet has shown to us that a simple idea well developed can offer extraordinaryresults, examples such as Facebook, Youtube, etc. These companies have developed theirweb sites in a short period of time with incredible final results. This can be the proof that athreat of new entries into the market is possible. It is an easy market to enter, with lowcapital requirements and almost no regulations.
Summary Threat of New… 5 4 Threat of New… 4 3 3 Rivalry 2 Rivalry 2 Bargaining among… 1 Bargaining… among… 1 Power of… 0 0 Threat of Threat of Bargaining Substitute Bargaining… Substitute Power of…The Similar:• Two giants in highly competitive markets• The high level of competition impacts the bargaining power of supplier for both companies.• Numerous suppliers in each market lowers their bargaining power.• The buyers bargaining power is high for both firms due to the intense competition.• Low power of threat of substitutes. Both companies offer quality products that are superiorto its substitutes significantly.The difference: the threat of new entrants.The mobile phone industry deals with significant high costs of production andmarketing, along with strict regulations market which lower the entrance threat and make itharder for new rivals to enter the market.These factors has a low impact on the internet industry (low regulations and costs), web sitesare created easily in a short period of time which makes it harder for Amazon to maintain itsposition.